THE STATE GOVERNMENT OF TAMIL NADU & ORS. versus M/S. SAMARTH BUILDERS & DEVELOPERS & ANR.

Citation: [2022] 16 S.C.R. 151 · Decided: 07-09-2022 · Supreme Court of India · Bench: SURYA KANT · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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BABANRAO RAJARAM PUND
v.
M/S. SAMARTH BUILDERS & DEVELOPERS & ANR.
(Civil Appeal No. 6272 of 2022)
SEPTEMBER 07, 2022
[SURYA KANT AND AND ABHAY S. OKA, JJ.]
Arbitration and Conciliation Act, 1996: s.11 – Arbitration
Clause in agreement – Respondent No.1 is a developer engaged in
the business of construction and development  of buildings –
Appellant and respondent No. 1 entered into a ‘Development
Agreement’ and pursuant thereto appellant also executed a General
Power of Attorney (GPA), in favour of Respondent No. 1 – Failure
on part of respondent No. 1 to complete the development works
within the stipulated time – Appellant served respondents with legal
notice communicating his desire to terminate the Development
Agreement and cancel the GPA as the stipulated period had already
lapsed – This gave rise to disputes and differences between the
parties – Appellant invoked arbitration clause in the ‘Development
Agreement’ and issued a notice to the respondents regarding referral
of the dispute to the sole arbitrator – Respondents failed to respond
to it – Appellant filed application u/s.11 of the Act before the High
Court – Respondents claimed that the contract lacked the express
wording necessary for it to be considered a valid and binding
agreement to refer the disputes to arbitration – High Court accepted
the contention of respondents and dismissed application as not
maintainable – Hence instant appeal – Held: High Court fell in
error in holding that application u/s.11 was not maintainable for
want of a valid arbitration clause – Clause 18 luminously disclosed
the intention and obligation of the parties to be bound by the decision
of the tribunal, even though the words “final and binding” were
not expressly incorporated therein – The parties evinced clear
intention to refer the dispute to arbitration and abide by the decision
of the tribunal, therefore the party autonomy deserves to be protected
– The deficiency of words in agreement which otherwise fortifies
the intention of the  parties to arbitrate their disputes, cannot
legitimise the annulment of arbitration clause – Clause 18,
contemplates a binding reference to arbitration between the parties
[2022] 16 S.C.R. 151
151
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SUPREME COURT REPORTS
[2022] 16 S.C.R.
and it ought to have been given full effect by the High Court –
Maharashtra Apartment Ownership Act, 1970 – s.2.
Allowing the appeal, the Court
HELD: 1. It is a settled proposition of law that the existence
of a valid arbitration agreement under Section 7 of the Act is sine
qua non for a court to exercise its powers to appoint an arbitrator/
arbitral tribunal under Section 11 of the Act. [Para 13][157-D]
2. Clause 18 luminously discloses the intention and
obligation of the parties to be bound by the decision of the tribunal,
even though the words “final and binding” are not expressly
incorporated therein. It can be gleaned from other parts of the
arbitration agreement that the intention of the parties was surely
to refer the disputes to arbitration. In the absence of specific
exclusion of any of the attributes of an arbitration agreement, the
Respondents’ plea of non- existence of a valid arbitration clause,
is seemingly an afterthought. [Para 23][162-A-C]
3. Even if this Court were to assume that the subject-clause
lacks certain essential characteristics of arbitration like “final
and binding” nature of the award, the parties have evinced clear
intention to refer the dispute to arbitration and abide by the
decision of the tribunal. The party autonomy to this effect,
therefore, deserves to be protected. The deficiency of words in
agreement which otherwise fortifies the intention of the parties
to  arbitrate  their disputes, cannot legitimise the annulment of
arbitration clause. [Paras 24 & 25][162-C-D]
4. It is thus imperative upon the courts to give greater
emphasis to the substance of the clause, predicated upon the
evident intent and objectives of the parties to choose a specific
form of dispute resolution to manage conflicts between them.
The intention of the parties that flows from the substance of the
Agreement to resolve their dispute by arbitration are to be given
due weightage. It is crystal clear to this Court that Clause 18, in
this case, contemplates a binding reference to arbitration between
the parties and it ought to have been given full effect by the High
Court. Clause 18 of the Development Agreement is held to be a
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valid arbitration cl

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